Five pieces of paperwork do most of the work in protecting your family and your business if you die or lose capacity: a will, lasting powers of attorney, a shareholder agreement with a cross-option arrangement, up-to-date pension nominations and suitable insurance.
None of them is difficult to put in place, but each is much harder, or impossible, to sort out afterwards. Recent changes to inheritance tax make it a good time to review them.
1. A will
Without a valid will, your estate passes under the intestacy rules, which may not match your wishes. Unmarried partners receive nothing automatically, and a surviving spouse may not inherit everything.
A will also affects inheritance tax. Each person has a nil rate band of £325,000 and a residence nil rate band of £175,000, both frozen until April 2031. The residence nil rate band only applies where your home passes to direct descendants, such as children or grandchildren, and it tapers away for estates over £2m. Unused allowances can pass to a surviving spouse or civil partner.
For example, a married couple with a home and other assets worth £1m in total, leaving everything to each other and then to their children, can usually pass the full £1m free of inheritance tax on the second death, using two nil rate bands and two residence nil rate bands. A will that does not leave the home to direct descendants could lose up to £350,000 of that allowance.
2. Lasting powers of attorney
If you lose capacity through illness or an accident, nobody can deal with your money or make decisions for you without a lasting power of attorney. Your family would need to apply to the Court of Protection, which is slow and costly.
There are two types: property and financial affairs, and health and welfare. Both must be registered with the Office of the Public Guardian before they can be used. Business owners should also consider a separate business power of attorney, so someone you trust can run the business without having access to your personal finances. For a company with a sole director, check the articles too, as the company could otherwise be left with nobody able to act.
3. A shareholder agreement and cross-option
If you own a company with others, what happens to your shares when you die? Without an agreement, they pass to your estate, and your family may end up as shareholders in a business they do not want to be part of, while your co-owners may not have the cash to buy them out.
A cross-option agreement gives the surviving shareholders an option to buy the shares and your estate an option to sell them. Using options rather than a binding contract for sale matters, because a binding contract can cause the shares to lose business property relief. From 6 April 2026, 100 percent business property relief is capped at £2.5m per person, with 50 percent relief above that, so the value of the shares and the relief available need checking.
The purchase is usually funded by life insurance, known as shareholder protection, so the buyers have the money when they need it.
4. Pension nominations
Most pension schemes pay death benefits at the discretion of the trustees, guided by an expression of wishes form. If that form is out of date, the money may not go where you intend. Review it after marriage, divorce, children or a new relationship.
From 6 April 2027 most unused pension funds and death benefits will fall into your estate for inheritance tax. Pensions have often been left untouched as an inheritance tax-efficient asset, so that change may affect how you draw your income and what you give away during your lifetime.
5. Insurance
Insurance gives your family and your business money at the point it is needed. Areas to consider include:
- Life cover for your family, ideally written in trust so it is paid quickly and kept outside your estate.
- Shareholder protection to fund a cross-option agreement.
- Key person cover to help the business through the loss of someone important.
- Relevant life policies, which allow a company to fund death-in-service cover for a director.
Take advice from a regulated financial adviser on the type and level of cover.
Keeping it current
These documents are not a one-off exercise. Review them every few years and after any major change, such as a marriage, a new business partner, a sale or a significant change in your wealth. Keep a note of where everything is and tell your executors.
What to do
- Make or update your will with a solicitor.
- Put lasting powers of attorney in place, including a business one if relevant.
- Check your shareholder agreement includes a cross-option arrangement funded by insurance.
- Update your pension expression of wishes forms.
- Ask us to estimate your inheritance tax position under the new rules.
If you would like us to look at your position, book a free call.
